Product life-cycle management in general includes price optimization for each period of a product's life-cycle periods. Product in this context can indicate goods or services or a combination of goods and services. Life-cycle periods in general include introduction, discontinuation, regular, and promotion periods. An embodiment in accordance with the present invention relates to improved price schedule determination during product discontinuation. Embodiments in accordance with the present invention relate generally to new and useful methods for markdown optimization.
Pricing during product discontinuation is referred to herein as “markdown pricing”. A markdown is a retail activity wherein a store or group of stores sells its or their remaining inventory of a product or group of products for a designated period of time. A markdown is also sometimes called a clearance or, more casually, a blowout. In contrast to usual retail sales where inventory is continually replenished as needed, markdown inventory generally is considered fixed and perishable. Once the end of the markdown time interval is reached, the remaining inventory in general has a salvage value, which may be zero. Markdowns have sometimes been based on heuristic rules. For example, at end of season, the merchant might markdown products twenty percent off for the first two weeks, then fifty percent off for next two weeks, then seventy-five percent off the last two weeks.
Optimization as that term is used herein denotes the determination of a result particularly desirable among results considered. Optimization does not necessarily imply determination of a global optimum over an entire solution space, but relates instead to a process of identifying solutions that are more and more optimized in comparison to other solutions.
Shopper demand for markdown products in markdown stores is generally time dependent over the markdown interval. Shopper demand may vary over time with changes in number of shoppers considering buying marked-down inventory.
Shopper demand may also vary over time with changes in the quantities of product that shoppers buy as a function of price. The discounting activity of the markdown process can create its own additional demand factor called promotional lift in addition to the increase in sales from reduced price; that is, the pattern of successive decreases in price may produce promotional lift independent of the effect of a temporary reduction in price.
A markdown is defined by a markdown schedule. A markdown schedule comprises the sequence of price cuts from regular price. While price is not required to change over time, price changes during a markdown period are only downward in discrete steps.
Some markdown optimization approaches have used general optimization algorithms, genetic algorithms, or exhaustive search. Those algorithms tend to be very slow when considering thousands of products in thousands of stores with a large number of possible price points and time step points. General optimization methods are relatively slow. Such general optimization methods are therefore suitable only in batch optimization and forecasting methods. There exists a need for an optimization method suitable for on-demand re-optimization.
Inventory has in other approaches sometimes been allocated based on overall sales volume of each store. High volume stores in those approaches receive more inventory than low volume stores. However, such methods generally do not account for product-level preferences in each store. Such methods generally do not account for product-level demand, inventory or markdown optimization given an inventory. Such methods also generally do not incorporate price and promotional planning. There exists a need, therefore, for an improved inventory allocation data processing operation.
There exists a need for the ability to provide a markdown schedule for product-store combinations that are divided into schedule groups, where all products and stores in each group are related in their markdown schedules. There exists a need for an improved markdown optimization capable of optimizing markdown schedules at the level of product groups or at the level of individual products or, in industries where applicable, the individual shop-keeping unit, or SKU. A schedule group might contain products with different prices as the discounts can be related by discounting common fractions of price.
There exists a need for the ability to provide a markdown schedule that can be updated while the markdown is in progress. The history-plus-proposed-markdown behavior can be subject to the constraints of certain rules defining acceptable markdown pricing. For example, if some products are selling fewer than expected, then future markdown prices might be reduced for the rest of the markdown interval.
There exists a need also for the ability to provide markdown schedule that concerns allocation of inventory from a distribution center to stores for each product in the markdown. While some inventory might be specific to a store and might not be moved to another store, some inventory might be at a distribution center at the beginning of the markdown. Each distribution center has a list of products and stores. The distribution center can allocate its inventory of markdown products to the stores in such a way as to optimize pricing and/or inventory objectives.
Other needs also exist for an improved method and system for scheduling markdown prices. There exists a need for an improved system and method for determining a markdown schedule to meet more fully the goals of inventory exhaustion and/or profit maximization. There exists a need for an improved system and method for determining a markdown schedule subject to business rules and constraints. There also exists a need for an improved system and method for determining a markdown schedule comprising a more efficient combinatorial search algorithm. There also exists a need for an improved system and method for determining a markdown schedule comprising stochastic hedging. There also exists a need for an improved system and method for determining a markdown schedule comprising joint optimization schedules for linked products and stores. There also exists a need for an improved system and method for determining a markdown schedule comprising optimized allocation of distribution center inventory. There also exists a need for an improved system and method for determining a markdown schedule comprising incremental model updates during a markdown. There also exists a need for an improved system and method for determining a markdown schedule comprising inventory and unit-sales forecasts. There also exists a need for an improved system and method for determining a markdown schedule comprising integration with regular price optimization and promotions.